What is “Fair Share”?  Over the past few weeks we have heard President Obama and other Democrats repeatedly say that all they want is for the top earners to pay their “Fair Share”.  According to the IRS, based on Adjusted Gross Income (AGI), the top 1% of earners paid 38.02% of total personal federal income tax and the top 10% paid 69.94% of total personal federal income tax.  Now the top 10% AGI threshold was $113,799 hardly the millions and billions of dollars often sited. Even the top 1% threshold was not in the millions or billions with $380,354 earning a spot in the top 1%.  These numbers are for the tax year 2008, the most recent I could find.  Contrast this with the bottom 50% paying only 2.7% of total federal personal income tax and the cutoff for the bottom 50% was $33,048.  Further, 47% of all households pay NO federal personal income tax.  Agreed that there are the payroll taxes, Social Security and Medicare, that are paid by most wage earners but these in essence purchase future benefits. 

What, in my opinion, is the unsaid problem is that with almost 50% of all households paying no federal personal income tax all of their incentives are to vote for those that advocate for higher taxes as they have nothing to lose and everything to gain. 

So what is “Fair”?  My solution is for the United States to do away with the income tax entirely and move to a consumption tax – stated another way a federal sales tax.  This accomplishes a few objectives.  One, the higher income group spends more so they would pay more.  Think about it, if a millionaire or billionaire buys a new yacht just think of the tax revenue. Further, a consumption tax captures the “Underground Economy” those that deal in cash and do not file income tax returns.  Even though they do not file tax returns, and report their income, they do purchase things and with a consumption tax we would tap this currently untapped source.  There are no statistics on the “Underground Economy” but there is little doubt that it is not inconsequential.  We could deal with the low income group with credits as we do today and those with no income would continue to be supported by the various welfare programs.

Is this solution perfect, probably not, but it is better than what we have today.  The cost of complying with the current tax situation is enormous and rising and nobody, including the IRS, understands the current tax code.  Another thing that most seem not to understand is that corporations do not pay taxes – they collect taxes.  The cost of taxes is included in the price of their product or service and ends up being paid by guess who?  Yes, we do every time we purchase a product or service.  So raising taxes on businesses is a sneaky way of increasing our taxes.  Higher corporate income taxes, already the highest in the developed world, make our businesses noncompetitive in the global economy so let’s not make the problem worse.

Fair is a funny thing.  My definition, which many do not like, is when “Both Sides Are Not Quite Happy”.  I guess that is also the definition of compromise.  By changing to a comprehensible tax code we just might accomplish that.  Think about it – no April 15^th mayhem!